Ending Federal Student Aid Would Only Hurt the Poor

Antony Davies has recently given a really brief pod cast as to how the student loan crisis is similar and even worse to the housing bubble that popped a few years back (it’s worth a look, only 4 minutes long). I think he’s right that this is a major problem. He suggests (as do many libertarians that I’ve conversed with about the student debt problem) that we end federal student aid. This will solve the student debt problem and the rising costs of a college education. Here, I’d like to briefly consider the implications of such a move and what that means for a majority of young Americans. After considering these implications it becomes clear that ending federal student aid is not what’s best. Unless our goal is to have a less educated populace. I’ll speak to a few of the claims he makes specifically rather than all of them for the sake of brevity.

Student debt is obviously a problem but so is an uneducated populous.

Assume that Davies gets his way tomorrow. No more federal aid! What does this mean for students who do not have the money for college? Well, they could take out private loans, however, most of the lower-income households who would be taking these loans out in the first place will not have the appropriate credit to secure such a loan. Further, many schools will now be without many students and this will force schools to cut costs. This will likely result in less profs and this would affect the level of education that even the rich receive. Sure, this may work to fend off an incoming bubble burst but at what cost to our citizens (many of whom pay taxes).

Davies says; Is it (a college education) a valuable investment or isn’t it? If it is a valuable investment there is no point in the government subsidizing it and if it is not then the gov’t definitely should not subsidize it. Either way, gov’t should leave their hand out of it because they are artificially driving up the price and the costs.

Response: A college education is valuable regardless of the type of job one gets when finished. Also, he claims that tuition/fees go up and that’s a direct cause of subsidizing from the gov’t. I’m not convinced that prices would not have gone up regardless. Sure, they may have gone up faster but they would have gone up regardless (maybe not as high, but higher nonetheless). Prices went up in other countries that don’t subsidize.

Further, he talks about “value” in simple economic terms. The value of a college education has much more value to the person getting educated and the community at large when more people are educated, regardless if there are jobs for the particular degrees. An educated populace adds to our culture and lowers crime, which in turn also saves the state money. Further, tax payers should have a say as to where their money is spent. To say the gov’t should not help its tax payers with their own money is bullshit.

I’m not saying we should continue business as usual but ending the ability for many to get educated is just as bad (if not worse) as subsidizing tax payers and children of taxpayers to get an education.

Finally Davies says; There is no argument here for the gov’t to be subsidizing higher education.

Without it only rich people could attend. That’s enough for me to think that gov’t should be subsidizing it. We’re not talking about subsidizing people so that they can get a Ferrari, to upgrade their “ride”. We’re talking about giving people the tools to critically analyze gov’t policies, workplace environments, technological advances, historical miscues, ethical underpinnings, and the like. These critical thinking tools can be had if coming from a family that values these sorts of things, but, for many lower-income families living pay check to pay check their focus is on how to make ends meat and not on how to give their children the tools to critically analyze their gov’t and their actions.. The argument is to have an educated populace. Without gov’t subsidies many (most) could not attend college. Now, we can sit here and blame who we would like in order to say why this is the case. But the fact remains. If tomorrow, gov’t subsidies were cut, most Americans could not attend college. Prices may come down, but I’m quite skeptical they’ll fall low enough for lower-income families to afford it (especially right away and for the foreseeable future).

One last thought; Gov’t should work to better its people and protect its people. Since the people are supplying the money to gov’t they should be using it for that reason. It seems that higher education falls in line with bettering the populace which would then seem to be an appropriate use of gov’t funds.

I have been in deep debt a few times in my life, and it is a horrible experience. For a young person starting out in life with education debt, a qualification but no job at the end of it, then it is crushing. The answers to this are difficult to make, but the ideal is that no young person should be starting life in debt, it is so wrong.

Yes, no young person should be stepping out into the world with a giant burden of debt. But I wholeheartedly agree with Justin here. An educated populace is very important. Get rid of debt=good. Get rid of education=bad. So the answer is not to take out both with one fell swoop. Let’s find a more effective method of removing the burden of debt, without losing the education.

I also believe an educated populace is important regardless of degree. Many lines of work have workers with unexpected degrees anyway. Student loans can help with social mobility and that diversity in the workplace often strengthens an organization. I had student loans, and I would want future generations to have the same option.

On a side note, the podcast bothers me when he is valuing education based on potential salaries. As he points out in his cast, social work has a very low return as far as financial investment, but that does not mean it isn’t valuable to society. The value of the profession is not necessarily related to salary. It just means that employees do not require as much money to do the job. Petroleum engineering pays very well, but it is also a high-risk profession. Not to mention that it is also one profession that we all know will eventually become obsolete since the petroleum will run out eventually…

I just picked it up and it deals with value not based on monetary gain and what we should do in order to preserve those types of value and what types of public policy we should advocate for in order to keep those values in our society. I’ll likely post on the book once I’ve finished (which might be some time considering the work load I’m dealing with these days).

Great point with regards to high-risk professions. Thanks for the comment and taing the time to read the post.

I am going to take this idea in a slightly different direction. Having been educated in both the US and Canada (as I believe you have been as well, Justin) I have thought about this a lot. To me, the question is not “Should the government give financial aid to university students?” It is rather, “How should the government give financial aid to university students?” (Clearly, I am assuming that government financial aid is a good thing.)

To clarify, I did my B.Sc. in Biology at Concordia University in Montreal. I am doing my M.A. in Theology at St. Joseph’s Seminary in Yonkers, NY. I plan on doing my Ph.D. in Moral Theology at the Catholic University of America in Washington, DC. I have therefore been able to compare the different admissions processes that exist in this various areas and the different situations in which the students find themselves.

There are three things that I like better about Canadian universities. They don’t place much emphasis on standardized tests. They place heavy emphasis on the quality of the education that they provide. They charge pretty appropriate tuition fees. The first is pretty irrelevant there, but I think that the other two are deeply intertwined. In Canada, schools exist to educate. In the US, schools exist to make money. In Canada, all students receive a certain amount of government aid. In my experience, (and yes, I am aware that Quebec has cheaper tuition that other provinces) most students were able to pay their own tuition by, say, working part-time and taking 5 years to graduate instead of 4. In the US, this is pretty much impossible. No matter how much I work here, I would never be able to pay undergraduate tuition without some sort of scholarship. However, my father was able to do just that. When he went to university in the 80’s, his tuition cost him $3,500/yr. Now, that same school charges $18,000/yr. What has happened in 30 years?

What has happened is that, American universities, being keenly aware of the importance that our culture places on a college education and, unfortunately, “the college experience”, have begun to compete for students. They do this by building fancy sports complexes, having great meal plans, putting Starbucks Cafes on campus, etc. This all costs a lot of money. To pay for it, they raise tuition. The students find themselves unable to pay their tuition, so they borrow money from the government. The government, in order to try and get as many people educated as possible, offers low-interest loans. But this, this is where the problem is. My very-conservative father was right in saying that the government loans are causing the tuition increases. (Well, the other problem is that people are not willing to fight for fair tuition as they are in Quebec) The universities can charge whatever they want, because the students will pay what they can and the government will inevitably make up the difference. This problem doesn’t happen in Canada however, why not?

The question is not “Should the government loan money to students or not?” Rather, the question is, “How should the government loan money to students?” The answer is “The government should loan money to students as it does in Canada, not as it does in the US.” Canadian universities, being public and receiving a certain amount of government aid for each student, are not able to turn themselves into businesses. They say, “It costs us $20,000/yr to educate each student, and the government gives us $15,000/yr/student, so we can charge each student $5,000/yr.” American universities say, “If we charge $30,000/year, we can expect the students to be able to pay $5000/yr and we can count on the government to give us $25,000/yr per student so that we can build our new academic building and attract more students with our good looks.” American universities are able to overcharge their students. Canadian universities are not. There’s the problem.

I’ve had a similar experience and I agree with your conclusion that we need to change the structure of the ay money is given out, I also agree with your synopsis for why some of the costs are rising.

I’ve heard a lot of arguments from some libertarian friends that initially posted this pod cast to their Facebook pages that we should end government aid because they are the cause of the rising prices. That’s why I posed the question the way that I did and not in the way that you structured it. I see your question as the second question that needs to be asked, but, many think that question doesn’t get off the ground because gov’t has “no business funding higher education in the first place” as Davies points out in the podcast.

Schools know that students can get the loans so they’ll jack up the prices as they know they’ll get the money. In essence, the student aid that was given to students is artificially raising the prices of tuition and fees. However, if the gov’t had some sort of policy in place that disallowed such unethical practices and exploitation to take place then we wouldn’t have to worry about students being 100k in debt because the amount that schools could charge would be regulated. If gov’t is going to keep aiding those that cannot afford to go to school then they should regulate how much the schools can charge. The answer is not to cut off aid, as you’ve stated, it’s to regulate what the schools are doing. The schools are exploiting the aid process and it should be stopped.

Yes, I understand the first question, and I haven’t come up with a complete answer to it yet. I am pretty confident in saying that higher education should not be a civil right. That said, should the state be obliged in any way to fund higher education? I don’t know, but I think it is clearly in their interest to do so and so they probably will regardless of obligation. Anyway, thanks for your comments and thanks for replying.

“Further, he talks about “value” in simple economic terms. The value of a college education has much more value to the person getting educated and the community at large when more people are educated, regardless if there are jobs for the particular degrees. An educated populace adds to our culture and lowers crime, which in turn also saves the state money.”

OK, but if this is true, why not not only subsidize, but require everyone to pursue PhDs? Because few people have the skill set to complete graduate degrees (assuming we don’t decide to start giving them away in exchange for students warming the seats — something we are starting to do at undergraduate institutions). Also because while there may be some positive externalities to education, there are also diminishing returns. This is the crux of the problem with your criticism. How do you know that the cost to society of subsidizing college is worth the benefit to society of the supposed positive externalities? And, if you are willing to believe — absent data one way or the other — then why not also believe it of graduate school?

“Further, tax payers should have a say as to where their money is spent. To say the gov’t should not help its tax payers with their own money is bullshit.”

This is an odd argument. You want to extend to taxpayers *in the aggregate* the freedom to say how their money is spent, but you are unwilling to extend that freedom to taxpayers as individuals. IOW, when you tax me, you prevent me from saying how my money is spent.

First, the value had that I was referring to, that is derived from living in an educated community, does not entail that all who go to college will supply a value to the community. However, for those that are capable of doing well and who want to do well they DO benefit the “community at large”. But, since not all are capable or willing then we should not subsidize all, initially we can gie them a shot. If they prove that they belong then they ought to be able to stay. This speaks also to why we shouldn’t “require everyone to pursue PhD’s”. For those that are better fit to work in industry this would hurt the community. However, for those capable and willing to do the hard work required to further their selected field of study they should have the opportunity as well. Most Phd’s get subsidized by the University and can get subsidies from the state in the form of student loans as well. The difference with PhD’s is that, for the most part, they haven’t lowered their standards as they have at the undergrad level.

You point to a problem with “warming the seats” and “giving degrees away” at the University. I’m totally against this and share your negative feelings toward such practices. However, if Universities did not drop their standards this would not be a problem. All I am claiming is that for those that want to be educated and who have the opportunity to be educated they add to the flourishing of that society.

With regards to my belief in “absent data” I don’t think my belief is ill-founded. Countries with a higher % of the population educated do extremely well in human areas such as health, civic participation, political interest among others. This suggests that education allows an individual to live longer, contribute dynamically in the community and commit fewer crimes which results in less on social assistance. See here http://www.toptenofcity.com/education/most-educated-countries.html for a list of the top 10 educated countries and the comparative stats of the above mentioned human categories.

Lastly, with regards to my “odd argument”.

I want to extend to taxpayers how their tax dollars are spent. Not on how “their money” is spent. Taxpayers get that right as individuals as well. Last I checked they take home most of what they earn. If that wasn’t the case then your point would have more sticking power.

Again, thanks for the comment. Your video was informative and very interesting. I shared it with my students as I think you are right in the sense that something needs to change. I just disagree with you on what that change ought to be.